PL Sector Report - Education - Sector Update – When will margin headwinds end for book publishers?
Prabhudas Lilladher Pvt Ltd
Paper prices had been on an upswing since quite some time. However, prices have stabilized over the last 4 quarters as can be seen via the movement in wholesale price index representing paper used for printing & writing. The index has remained stable in the band of 168 odd as evident from the table below: -
Exhibit 1: WPI of printing & writing paper has remained stable in the band of 168 over the last 4 quarters
| Particulars | 1QFY21 | 2QFY21 | 3QFY21 | 4QFY21 | 1QFY22 | 2QFY22 | 3QFY22 | 4QFY22 | 1QFY23 | 2QFY23 | 3QFY23 | 4QFY23 | 1QFY24* |
| WPI - Printing & Writing Paper | 131.3 | 125.7 | 122.3 | 127.8 | 132.7 | 130.8 | 136.0 | 140.7 | 156.1 | 168.6 | 168.4 | 168.8 | 168.0 |
| YoY growth | -4.90% | -7.20% | -7.00% | -2.70% | 1.00% | 4.00% | 11.20% | 10.10% | 17.70% | 28.90% | 23.80% | 19.90% | 7.60% |
Source: Company, PL
*Data for 1QFY24 is an average of April and May 2023 as figure for June is not published as yet
Key points to read the above table:-
§ Base year of the index is FY12.
§ All data is taken from Ministry of Commerce.
§ Index value for the quarter is simple average of 3 months (WPI data is published on monthly basis).
§ We have shortlisted the index representing printing & writing paper for our analysis as it is the right benchmark for book publishers like Navneet and S Chand.
§ Our chosen index may not be a right representation of actual inflation book publishers are facing given paper prices vary depending upon various grades of thickness. The basic idea behind this exercise is to just understand the trend in prices.
Our view: As can be seen, the WPI for printing & writing paper was up by 7.6% YoY in 1QFY24 but has remained broadly stable over the last 4 quarters. In FY23, given sharp rise in paper prices, Navneet Education Ltd (NELI) and S Chand & Co (S Chand) had taken a price hike of ~17% (publishing business) and ~18% respectively. Given sharp hikes were already taken last year, we believe the ability to take price hike in FY24E is limited to a certain extent and RM stabilization will be key for GM improvement. While NELI has not indicated the quantum of price hike scheduled for FY24E, S Chand has indicated that price hike can be in the range of ~6-8%.
Exhibit 2: GM to be at 51%/64.9% for NELI/S Chand in FY24E
| Particulars | FY21 | FY22 | FY23 | FY24E | |
| Navneet | 52.40% | 52.30% | 50.10% | 51.00% | |
| S Chand | 63.10% | 64.10% | 63.80% | 64.90% |
Source: Company, PL
As WPI index has remained at elevated levels since last 4 quarters, we expect NELI and S Chand to report GM of 48.0%/61.0% respectively in 1QFY24E. However, with international paper prices declining, domestic prices may follow suit later during the year. Hence, we expect NELI/S Chand to report 90bps/100bps YoY improvement in GM to 51%/64.9% respectively in FY24E. Until then, we believe S Chand will be a bigger beneficiary of lower paper prices in international markets as it has a higher share of imported paper (~40-50% in FY24E) in its cost mix versus NELI (~5-10% exposure of imported paper in the past). We maintain BUY on NELI/S Chand with a TP of Rs152/Rs257 respectively.
Navneet Education (NELI IN)
Rating: BUY | CMP: Rs130 | TP: Rs152
Key Financials - Consolidated
| Y/e Mar | FY22 | FY23 | FY24E | FY25E |
| Sales (Rs. m) | 11,143 | 16,968 | 19,053 | 21,073 |
| EBITDA (Rs. m) | 1,626 | 2,980 | 3,391 | 3,829 |
| Margin (%) | 14.6 | 17.6 | 17.8 | 18.2 |
| PAT (Rs. m) | -32 | 1,405 | 1,888 | 2,153 |
| EPS (Rs.) | -0.1 | 6.2 | 8.3 | 9.5 |
| Gr. (%) | NA | NA | 34.4 | 14 |
| DPS (Rs.) | 1.5 | 2.6 | 2 | 2.3 |
| Yield (%) | 1.2 | 2 | 1.5 | 1.8 |
| RoE (%) | NA | 13 | 15.5 | 15.7 |
| RoCE (%) | 12.3 | 19.8 | 19.3 | 20 |
| EV/Sales (x) | 2.7 | 1.9 | 1.7 | 1.5 |
| EV/EBITDA (x) | 18.7 | 10.7 | 9.3 | 8.1 |
| PE (x) | NA | 20.9 | 15.6 | 13.7 |
| P/BV (x) | 2.9 | 2.6 | 2.3 | 2 |
S Chand and Company (SCHAND IN)
Rating: BUY | CMP: Rs205 | TP: Rs257
Key Financials - Consolidated
| Y/e Mar | FY22 | FY23 | FY24E | FY25E |
| Sales (Rs. m) | 4,809 | 6,103 | 7,010 | 7,783 |
| EBITDA (Rs. m) | 614 | 963 | 1,273 | 1,461 |
| Margin (%) | 12.8 | 15.8 | 18.2 | 18.8 |
| PAT (Rs. m) | 123 | 328 | 619 | 750 |
| EPS (Rs.) | 3.5 | 9.3 | 17.6 | 21.3 |
| Gr. (%) | NA | 166.8 | 88.7 | 21.1 |
| DPS (Rs.) | - | 3.0 | 3 | 3 |
| Yield (%) | - | 1.5 | 1.5 | 1.5 |
| RoE (%) | 1.5 | 3.8 | 6.7 | 7.7 |
| RoCE (%) | 1.6 | 4.1 | 6.3 | 7.2 |
| EV/Sales (x) | 1.7 | 1.2 | 1 | 0.8 |
| EV/EBITDA (x) | 13.3 | 7.9 | 5.5 | 4.4 |
| PE (x) | 58.7 | 22 | 11.7 | 9.6 |
| P/BV (x) | 0.9 | 0.8 | 0.8 | 0.7 |
PL Research is also available on Thomson Reuters & FactSet.